Everything You Need to Know About the China Criticisms Weighing on Tesla Stock

For the company leading the electric vehicle (EV) race, the year started off well. Tesla (NASDAQ:TSLA) reported that it had successfully beaten delivery expectations during the final earnings quarter of 2021. As Tesla stock surged, many investors focused on the road ahead, not the declines that the stock saw as 2021 wound to a close. However, the stock has reversed direction today as controversy ramps up over the location of the EV giant’s new showroom. Indeed, this new development has led to plenty of questions regarding the company’s morals and motives.

A person walks past the storefront of a Tesla store with several vehicles visible behind a glass door
Source: Ivan Marc / Shutterstock.com

What’s Happening With Tesla Stock

Since markets opened this morning, Tesla stock has been falling steadily. At the time of writing, it is down almost 6%. Given how positive most stock coverage has been since yesterday, all signs point to these declines being due to the recent company news out of China.

To elaborate, Tesla’s latest showroom and service center opened on New Year’s Eve 2021. While it’s known that Tesla is working to expand into international markets, its latest development raised the eyebrows of critics. This is largely because it is located in China’s Xinjiang region, an area known for the detention and mistreatment of the Uyghur Muslim population. Human rights organizations have criticized the Chinese government’s treatment of this religious minority as genocidal and oppressive, citing concerns of mass detainment and forced labor.

The Road Ahead

This news comes just a few weeks after U.S. President Joe Biden signed into effect a bill requiring companies to prove that any imported goods from the Xinjiang region were not produced by slave labor or other unethical means. The bill was co-authored by Senator Marco Rubio, who was quick to criticize Tesla for its decision. In a recent tweet, he accused Tesla of “helping the Chinese Communist Party cover up genocide and slave labor.”

Criticism from both sides of the political aisle has been flowing freely since news of this story broke this morning. The business community has reacted strongly as well. However, Musk’s relationship with China is complicated, to say the least. Chinese President Xi Jinping was willing to rewrite some of his country’s rules of industry for the sake of attracting Tesla’s business. And Musk, in turn, has praised the president’s leadership. While Musk’s willingness to do business in a region best known for human rights violations is not admirable, it is also not surprising.

What should we take away from this? It is clear that Musk isn’t bothered by the Xinjiang region’s brutal reputation. However, he clearly doesn’t see it as a threat to Tesla stock or the company’s business in the year ahead. Musk has also made it clear that he has no reservations about squaring off with politicians. Indeed, in the past year he publicly faced off with senators such as Bernie Sanders and Elizabeth Warren. While we know that he doesn’t shy away from controversy, something much larger is at play here.

The Bottom Line

What we’re seeing from Musk is troubling from a moral standpoint. For investors, this likely presents a dilemma. While those who are concerned with social responsibility will likely divest from Tesla stock, others will be there to pick it up. This is likely what Musk is keeping in mind as he makes his choices.

Musk hasn’t commented on this news yet, and it’s unlikely that his public relations will allow him to. Tesla stock will rebound, but the company’s reputation in the eyes of many will not so long as it maintains ties to a place like Xinjiang.

On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Article printed from InvestorPlace Media, https://investorplace.com/2022/01/everything-you-need-to-know-about-the-china-criticisms-weighing-on-tesla-stock/.

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